Student Loan Repayment Options: Find the Best Plan

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There are multiple federal student loan repayment options. But the best one for you will likely be standard repayment or income-driven repayment, depending on your goals.

If you want to pay less interest: standard repayment.

If you need lower payments: income-driven repayment.

If you qualify for student loan forgiveness: income-driven repayment.

You can also lower payments with the graduated and extended student loan repayment plans, which don’t rely on your income. These offer fewer benefits than income-driven repayment, but they may make sense if you make a lot of money or want predictable payment amounts.

If you want to pay less interest

Best repayment option: standard repayment.

On the standard student loan repayment plan, you make equal monthly payments for 10 years. If you can afford the standard plan, you’ll pay less in interest and pay off your loans faster than you would on other federal repayment plans.

How to enroll in this plan: You’re automatically placed in the standard plan when you enter repayment.

You can prepay loans to save on interest with any repayment plan, but the impact will be greatest under standard repayment. Just be sure to tell your student loan servicer to apply the extra payment to your principal balance instead of toward your next monthly payment.

If you need lower student loan payments

Best repayment option: income-driven repayment.

The government offers four income-driven repayment plans: income-based repayment, income-contingent repayment, Pay As You Earn (PAYE) and Revised Pay as You Earn (REPAYE). These options are best if your income is too low to afford the standard payment.

Income-driven plans set monthly payments between 10% and 20% of your discretionary income. Payments can be as small as $0 and can change annually. Income-driven plans extend your loan term to 20 or 25 years. At the end of that term, any remaining loan balance will be forgiven — but you pay taxes on the forgiven amount.

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Any option that decreases your monthly payments will likely result in you paying more overall.”

Before changing student loan repayment plans, plug your information into the Education Department's Loan Simulator to see what you’ll owe on each plan. Any option that decreases your monthly payments will likely result in you paying more interest overall.

How to enroll in these plans: You can apply for income-driven repayment with your student loan servicer or at studentaid.gov. When you apply, you can choose which plan you want or opt for the lowest payment. Taking the lowest payment is best in most cases, though you may want to examine your options if your tax filing status is married filing jointly.

Graduated repayment decreases your payments at first — potentially to as little as the interest accruing on your loan — then increases them every two years to finish repayment in 10 years.

If your income is high compared with your debt, you may initially pay less under graduated repayment than an income-driven plan. This could free up money in the short term for a different goal, like a down payment on a home, without costing you as much interest as an income-driven plan. You would still pay more interest than under standard repayment.

Initial payments on the graduated plan can eventually triple in size. You need to be confident you’ll be able to make the larger payments if you choose this plan. Generally speaking, it’s best to stick with the standard plan if you can afford it.

If you want predictable payment amounts, the extended student loan repayment plan may make sense for you. The extended plan lowers payments by stretching your repayment period to as long as 25 years. You must owe at least $30,000 in federal student loans to qualify for extended repayment.

You can choose to pay the same amount each month over that new loan term — like under the standard repayment plan — or you can opt for graduated payments. Whether you choose equal or graduated extended payments, you’ll have a good idea of what you’ll pay each month in the future.

Under income-driven repayment, payments can change annually based on your income. If your salary jumps, your payments will, too. But extended repayment does not offer loan forgiveness like income-driven repayment plans do; you will pay off the loan completely by the end of the repayment term.

How to enroll in this plan: Your student loan servicer can help you switch to the extended repayment plan.

You may be able to temporarily postpone repayment altogether with deferment or forbearance. Some loans accrue interest during deferment, and all accrue interest during forbearance. This increases the amount you owe.

If you qualify for student loan forgiveness

Best repayment option: income-driven repayment.

Public Service Loan Forgiveness is a federal program available to government and certain nonprofit employees. If you’re eligible, your remaining loan balance could be forgiven tax-free after you make 120 qualifying loan payments.

Only payments made under the standard repayment plan or an income-driven repayment plan qualify for PSLF. To benefit, you need to make most of the 120 payments on an income-driven plan. On the standard plan, you would pay off the loan before it’s eligible for forgiveness.

How to enroll in these plans: You can apply for income-driven repayment with your servicer or at studentaid.gov.

If you have a credit score in at least the high-600s — or a cosigner who does — there’s little downside to refinancing private student loans at a lower interest rate. Dozens of lenders offer student loan refinancing; compare your options before you apply to get the lowest possible rate.

How much could refinancing save you?

Some private lenders also refinance federal student loans, which can save you money if you qualify for a lower interest rate. But refinancing federal student loans is risky because you lose access to benefits like income-driven repayment plans and loan forgiveness. Refinance federal loans only if you’re comfortable giving up those options.

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